UK dividends halve in Q3
Analysis by the group found that the UK’s dividend picture looked a bit more promising in the third quarter of 2020, but only in the context of the record falls in payouts seen so far in 2020.
Link Group’s latest UK Dividend Monitor found that Q3 dividends slumped by 49.1% on a headline basis to £18bn, the lowest Q3 total since 2010 when the UK was suffering the aftermath of the global financial crisis.
By any normal standards a fall of this magnitude is terrible for investors, but it is significantly better than the 57.2% drop in the second quarter.
On an underlying basis, which excludes special dividends, payouts fell by 45.1% to £17.7bn, compared to a 50.2% decline in the second quarter.
Overall, just under half of companies cancelled their dividends altogether in Q3, while a further fifth cut them.
This means that almost two thirds of companies cut or cancelled their payouts, which was in line with Link Group’s expectations. In the second quarter, three quarters of companies cut or cancelled payouts.
Of the £14.5bn of cuts in the third quarter, banks accounted for almost two fifths, as they remain barred from paying dividends by the Bank of England.
The oil sector contributed another fifth and mining one eighth, though gold miners bucked the trend by paying sharp increases.
The airline, travel and leisure sector, general retail, media, and housebuilding and consumer goods and services bore the brunt of the lockdown measures.
Travel and retail payouts fell 96% year-on-year in Q3, while those from the media and housebuilding and consumer goods and services sectors were down by two thirds.
Only two sectors, food retailers and basic consumer goods, delivered year-on-year increases, though only just.
A really positive sign came from BAE Systems and engineering concern, IMI, becoming the first companies to catch up on all the dividends missed year-to-date.
Berkeley Group, which had rescinded a big special payout earlier in the year paid a very large interim, five times bigger than 2019, to make up some of the lost ground. Others, like Direct Line, restarted their payouts.
According to Link Group, UK shares will yield 3.6% in a best case scenario and 3.3% in a worst over the next twelve months.
Link now expects UK dividends (excluding specials) to fall to £60.4bn on a best case basis and £59.9bn on a worst case, a decline of 38.7% and 39.2% respectively.
On a headline basis, which includes special dividends, the 2020 decline is set to be between 44.6% and 45.2%, yielding £61.2bn or £60.6bn respectively.
Susan Ring, CEO corporate markets of Link Group, said: “UK plc is not out of the woods, but the trees are perhaps thinning a bit. Our worst-case scenario has steadily improved all year and though UK investors face a historic decline in their income this year, the worst is now behind us. As companies become better able to assess the impact of the pandemic and the associated restrictions on their operations, some are restarting dividends and a handful are even making up some of the lost ground.
“Looking ahead there is still huge uncertainty. With the pandemic showing no sign of abating and no hoped-for vaccines likely to be distributed for at least several months yet, governments are trying to walk the tightrope of using prolonged restrictions to limit healthcare caseloads without destroying even more of the economy and creating even more unintended consequences for health in other ways.
“The fourth quarter this year and the first quarter next are set for further sharp declines, but from April onwards, the anniversary of the lockdown, the comparisons will start to look more favourable and we expect to see a bounce-back begin.”